Explanation

This risk was not identified in the FDD package. Item 20 tables do not show concerning levels of franchisee terminations, non-renewals, or cessations of business. Low turnover can be an indicator of a healthy franchise system and franchisee satisfaction. However, it is always wise to verify this data by speaking directly with current and former franchisees.

Potential Mitigations

• You should still contact a significant number of current and former franchisees from the lists in Item 20 to discuss their experiences.
• A business advisor can help you analyze the Item 20 tables for any subtle trends over the three-year period provided.
• Your attorney can help you formulate key questions to ask former franchisees regarding their reasons for leaving the system.

Explanation

This risk was not identified in the FDD package. The business concept of a craft doughnut and coffee shop operates in an established, albeit competitive, market. While specific product offerings may be trendy, the core business is not typically considered a fad and has a history of sustained consumer demand. The primary risk is competition, not the business type becoming obsolete.

Potential Mitigations

• A business advisor can help you assess the long-term market demand for this specific type of food service in your local area.
• Reviewing the franchisor's plans for product innovation and menu development in Item 11 is advisable.
• Working with your financial advisor to analyze the competitive landscape is a crucial step in developing your business plan.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchise is founder-owned and does not disclose any ownership by a private equity firm. The risks typically associated with PE ownership, such as a focus on short-term returns over long-term system health, do not appear to be present based on the provided documents.

Potential Mitigations

• Although not applicable here, it is always wise to have your attorney verify the ownership structure disclosed in Item 1.
• A business advisor can help you understand the different incentives and potential risks associated with various franchisor ownership structures.
• Your accountant can review financial statements for signs of financial engineering common in PE-backed companies, a good practice for any FDD.

Explanation

This risk was not identified in the FDD package. Item 1 does not disclose a parent company structure for the franchisor, Parlor Doughnuts Franchising, LLC. The franchisor appears to be the primary entity, and there is no indication that its obligations are guaranteed by, or dependent on, another undisclosed parent entity. Therefore, risks associated with a parent company's financial health or influence do not apply here.

Potential Mitigations

• As a general practice, your attorney should confirm the corporate structure of the franchisor and identify any and all affiliated entities.
• Your accountant can help you analyze the stand-alone financial viability of the franchisor entity presented in Item 21.
• It is always a good practice to ask the franchisor to confirm in writing that no other entities control its operations.

Explanation

This risk was not identified in the FDD package. Item 1 does not mention any predecessors. This indicates that the franchisor, Parlor Doughnuts Franchising, LLC, did not acquire the system's assets from another company and is the original entity offering this franchise concept. Therefore, there is no risk of undisclosed negative history from a predecessor company.

Potential Mitigations

• It is still prudent to have your business advisor research the history of the brand and its founders to ensure no prior, related ventures have been omitted.
• Asking early franchisees about the history of the company as they understand it can sometimes reveal unstated details.
• Your attorney can perform public records searches to confirm the corporate history provided in Item 1.

Explanation

This risk was not identified in the FDD package. Item 3 explicitly states, "No litigation is required to be disclosed in this Item." The absence of a pattern of litigation, particularly franchisee-initiated lawsuits alleging fraud or franchisor-initiated suits against franchisees, is a positive indicator for the health of the franchise system's relationships.

Potential Mitigations

• Even with a clean Item 3, asking current and former franchisees about any informal disputes they may be aware of is a wise due diligence step.
• Your attorney can conduct a public records search to independently verify the absence of litigation against the franchisor.
• A business advisor can help you interpret the significance of litigation disclosures in any FDD you review in the future.